Purchase applications backed off but have been moving higher for several months, though still very depressed:


A nice move up but as per the chart it’s hovering around 0:


Worse than expected, and continues at recession levels, and note the decline in autos:

Highlights
A steep drop in vehicle production pulled industrial production lower in May, down 0.4 percent. Vehicle production had been leading this report but fell 4.2 percent in the month excluding which the headline loss would have been 2 tenths less severe at 0.2 percent. Utility output is always volatile and fell 1.0 percent, which isn’t helpful, but mining for once is, up 0.2 percent for the first gain since August last year.

The manufacturing component, hit especially by vehicles, is the big disappointment, down 0.4 percent in the month. Declines sweep sub-components including consumer goods, business equipment and construction supplies. Year-on-year, manufacturing volumes are unchanged in what is reminder of how soft the factory is.

There’s also downward revisions to April including manufacturing where the gain is 1 tenth more modest at 0.2 percent. The weakness of the factory sector, and its exposure to foreign markets and declining business investment, is contrasting very sharply right now with strength in the consumer sector.

Note that the traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

This is what continues to put upward pressure on the euro, offsetting the portfolio shifting due to fears of Brexit, negative rates, and QE, in contrast to the negative US trade gap:

Euro Area Balance of Trade
The Eurozone trade surplus widened 31.5 percent year-on-year to €27.5 billion in April of 2016. It is the highest trade surplus for an April month on record as imports fell at a faster pace than exports due to decline in oil prices.

Saudi output hasn’t materially changed. The previous strategy was to set the price low enough for output to increase. So seems the new oil minister has changed course is now setting price as high as he thinks he can set it without triggering development of higher priced oil.

Let me suggest this GDP ‘forecast’ is about as high as it gets before substantially falling back, as it did last quarter. This is because it is an account of what’s happened in April and May based on actual reports, and is not meant to take into account the reversion of a volatile series over the following months. Nor would it, for example, assume that an inventory increase one month would result in a decrease the next. Or that the downward revisions in employment, for example, raises the likelihood of downward revisions in other series:

Yes, the private sector is ‘pro cyclical’. As things deteriorated, beginning, in this case with the collapse of oil capex at the end of 2014, it all started going down hill, as no other spending stepped up to the plate to replace the maybe $15 billion/month of lost capex spending, which also means $15 billion less income than otherwise. The lost sales and income then feeds on itself, in a downward spiral that slowly accelerates until some source of deficit spending emerges. That historically comes either the nice way- a pro active fiscal adjustment such as a tax cut or spending increase, or the ugly way as unemployment compensation increases and tax receipts fall off. And by making unemployment benefits harder to get this time around, that channel has been materially reduced:

“There Is A General Softening In The Consumer’s Ability To Pay” – Why Credit Card Companies Are Crashing

By Tyler Durden

June 14 (Zero Hedge) — Card issuers are warning that credit trends have deteriorated after years of historically low write-off rates. Capital One CEO Richard Fairbank said at a conference this month that soured loans are rising, while JPMorgan Chase & Co.’s Jamie Dimon said that credit is “going to get worse.” Revolving debt held by U.S. consumers increased to $951.5 billion at the end of April, a 5.5 percent increase from a year earlier, according to the Federal Reserve.

Cited by Bloomberg, Daniel Werner, a Morningstar Inc. analyst in Chicago, said that “it sure seems like the market thinks its more of a tidal and secular shift. We’re not at a point where people should really be panicking.”

Rail Week Ending 04 June 2016: Rail Contraction Accelerates

By Steven Hansen

June 10 (Econintersect) — Week 22 of 2016 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The improvement seen last week evaporated, and was likely due to the a holiday falling into different weeks between years.

And this indicator:

Cost cutting likewise reduces income:

The deceleration in jobs openings released yesterday leads the deceleration in employment. Downward job revisions also mean lower income estimates, so watch for personal income and savings to be revised down as well. And it all started decelerating after oil capex collapsed at the end of 2014.

Job Openings Hit Record High, But Hiring Fades In JOLTS Survey

By Ed Carson

June 8 (IBD) — Job openings matched a record high in April but hiring activity sank to the lowest since last August, the Labor Department said Wednesday in its Job Openings and Labor Turnover Summary report. The number of job openings rose by 118,000 to 5.788 million, equaling last July’s peak on records going back to 2001. Meanwhile, the actual number of hires slid by 198,000 to 5.092 million. Separations declined by 108,000 to 4.988 million. Layoffs fell to their lowest level since September 2014. The number of workers quitting their jobs dipped slightly.

Claims remain depressed, best I can tell due to states making them so hard to get. This means the economy is deprived of the federal spending, making things worse:

Inventories remain far too high even with the slightly lower 1.35% sales/inventory ratio. And the large sales increase was based on the April vs March car sales increase. So with the May vs April car sales flat, total sales growth looks to resume it’s prior slide, as per the chart. So while April may show some GDP strength due to inventory building, I expect it all to more than reverse by quarter end:

Highlights
Wholesales inventories rose a very sharp 0.6 percent in April in a result that will lift early estimates for second-quarter GDP. And the build (risking a double negative) is not unwanted as sales in the wholesale sector rose a very strong 1.0 percent. The mix actually points to a leaner level of inventories with the stock-to-sales ratio down to 1.35 from 1.36.

Sales of autos were especially strong in the wholesale sector during April, up 1.6 percent and making for a 0.4 percent decline in inventories in a draw that will, based on solid unit sales data for May, have to be replenished.


This doesn’t bode well either- inventories remain high given the pace of sales.

This hasn’t updated but it’s only down to 1.35:

From the MBA:

The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 6 percent lower than the same week one year ago.

Highlights
Purchase applications for home mortgages rose strongly in the June 3 week and were up 12 percent from the prior week when seasonally adjusted to account for the Memorial Day holiday, while refinancing increased by 7 percent. Unadjusted, however, purchase applications decreased by 12 percent from the previous week. Mortgage activity continues to benefit from very low rates, with the average 30-year mortgage rate for conforming loans ($417,000 or less) down 2 basis points from the prior week at 3.83 percent.

Productivity is output per employee. So as output growth slows, productivity declines and unit labor costs increase until employment growth is reduced.

So looks to me like the slowing of output growth and declining productivity lead to the employment declines.

And it’s a continuing process:

Weak Productivity, Rising Wages Putting Pressure on U.S. Companies

By Josh Mitchell

June 7 (WSJ) — Labor productivity fell at a 0.6% annual rate in the first quarter. Productivity grew an average 2.2% since World War II but has expanded just 0.5% over the last five years. Hourly compensation, encompassing everything from salaries to retirement benefits and health care costs, surged at a 3.9% annual rate in the first quarter. It rose 3.7% over the past year. In the first quarter, labor costs per unit of output rose 4.5% at a yearly rate and 3% from a year earlier. Fed Chairwoman Janet Yellen said on Monday she was “cautiously optimistic” that productivity would return to faster growth.

Seems there might be a lot more slack than most have been estimating:

US unemployed have quit looking for jobs at a ‘frightening’ level: Survey

By Jeff Cox

June 8 (CNBC) — Nearly half of unemployed Americans have quit looking for work, and the numbers are even worse for the long-term jobless, according to a poll released Wednesday that paints a grim picture of the labor market.

Some 59 percent of those who have been out of work for two years or more say they have stopped looking, the Harris Poll of unemployed Americans showed. Overall, 43 percent of the jobless said they have given up, according to the poll released in conjunction with Express Employment Professionals, a job placement service.

“This is a tale of two economies,” Express CEO Bob Funk said in a statement. “It’s frightening to see this many people who could work say they have given up.”

The results come just a few days after a government report showed thatthe unemployment rate fell to 4.7 percent in May, but the drop came primarily because of a sharp decline in the labor force participation rate. The number of people of all ages whom the government considers “not in the labor force” swelled by 664,000 to a record 94.7 million Americans, according to Labor Department data.

Recent paper I co authored, Maximizing Price Stability in a Monetary Economy

This went from bad to worse but they don’t seem to pay much attention to it:

Labor Market Conditions Index

Highlights
Last week’s employment report was very weak and is reflected in May’s labor market conditions index which came in at minus 4.8 for the fifth straight negative reading and the lowest of the economic cycle, since May 2009. April is revised 2.5 points lower to minus 3.4 which, next to May, is the second lowest of the cycle. These readings point to a fundamental shift lower for the labor market and are not consistent with a rate hike anytime soon. The index, experimental in nature, is a broad composite of 19 separate indicators and, as yet at least, is rarely cited by policy makers.

So the Saudis, the price setter for oil, announced that they reduced their discounts (raised prices) vs benchmarks in a move that firmed oil prices.

And it’s not illegal over there for insiders to buy oil ahead of the price increase.

Saudi Arabia Lifts Oil Pricing in Show of Confidence on Demand

By Anthony Dipaola

June 5 (Bloomberg) — Saudi Arabia lifted oil pricing for Asian and U.S. customers, a sign the world’s biggest crude exporter is confident that demand is finally eroding a global supply glut.

State-owned Saudi Arabian Oil Co. raised its official selling price for Arab Light crude in Asia for the second consecutive month, the first back-to-back increase since May 2015, to the highest level since September 2014. Saudi Aramco is the first Gulf country to give July pricing, and major producers including Iraq and Iran typically follow Saudi Arabia. Supply and demand are coming into balance, and oil prices will keep recovering, Saudi Arabia Energy Minister Khalid Al-Falih told reporters in Vienna on Thursday.